Most Effective Deal

1997 Editor’s Choice Award
Kellwood/EDS

In most business circles, the Kellwood Company is a well-kept secret. Although the company is the fourth largest apparel company in the U.S. and the largest producer of popularly priced clothing, their clothing does not carry the Kellwood label. The product offerings, instead, are spread over 180 labels, including Sag Harbor and Kathy Lee Gifford.

That glimpse into Kellwood’s structure also points up one of the challenges the company faced in its IT operation. As Kellwood grew through consolidations and acquisitions, the company also took on existing IT systems. As a result, Kellwood ended up with nine separate IT systems.

“As Kellwood has grown and the nature of our business has grown with consolidations, we need to be far more efficient,” said Hal Upbin, president and COO. “We need to communicate, to put in joint processes. We realized we didn’t have the connections with the efficiencies that we were trying to put into place.”

The Two Faces of the Deal

The Kellwood/ EDS relationship has two distinct sides to it. First, there is the relationship with EDS. The vendor has an eight-year contract to manage all nine of those IT systems and provide day-to-day IT services for Kellwood. As part of that agreement, EDS took over about 60 former Kellwood employees.

As another aspect to this side of the relationship, EDS is working with Kellwood to oversee the choice and development of a new IT structure for the whole company. An Orace/Richter software package has been selected and is being demonstrated for Kellwood. EDS is overseeing the pilot program for the system, which is expected to be installed in most of Kellwood’s divisions by the end of 1999 and will solve the company’s year 2000 problems.

“We are very gratified that they are solving that problem at a cost that is not a whole lot greater than having a whole new system for all our divisions,” said Upbin. “For a modest additional cost, we’re actually going to be implementing a brand new integrated business system.”

Button, Button — Who’s Got the Button…

The other side of the deal is a relationship with AT Kearney,

EDS’ consulting division. Kearney is working with Kellwood on separate process improvement projects in the way the company sources their supplies. Phase one, which recently was completed, covered acquiring items from packaging to piece goods. Phase two, not yet begun, will deal with sourcing contractors who actually make the products.

“We finished phase one, which was what I call the low apples, the things you can do quickly,” said Upbin. “We’re very pleased with the results. We’re already seeing savings of considerable magnitude, to the tune of a half million dollars a month — and that’s just the beginning of the program.”

Those savings are basis of another important component of the relationship. Whereas the IT contract with EDS includes a negotiated fee, the Kearney deal involves risk on the consultants’ part. Kearney’s fee is paid out of savings. No savings, no payment. That, however, has not proven to be the case.

Expertise on Call

Another difference in the way the two sides of the relationship are structured is that the Kearney projects have a beginning, a middle and an end. “Whereas EDS is with us under this rather long-term cosourcing arrangement, Kearney will come and go,” said Upbin.

One of Kearney’s projects was a study on Kellwood’s logistics and warehousing. The study, completed six months ago, recommended certain consolidations based on purchase and distribution activities. Kellwood now is consolidating a number of units into distribution centers, both new and existing. Technologically advanced distribution systems also are being added.

“We’re in a very ambitious spending program to upgrade or leapfrog our distribution and logistics of almost three generations. That’s based on a study done with Kearney.”

The relationships are managed in teams. In some cases, all three parties are presented on a team and, in others, only Kellwood and one of the others are involved. Cost and savings are monitored every month through “an elaborate measuring system that initially took some energy to put in place,” said Upbin.

Both sides of the relationship definitely include room for EDS and Kearney to offer suggestions for the future.

“What interests me about them is their knowledge about project management and process improvement. We don’t have that,” said Upbin. “We have it in manufacturing apparel, but we don’t have it in the way that they understand project management for IT structures or improvement. They know how to do that. We don’t. So they’re an important ingredient in that process.”

Trust is Non-Negotiable

What makes this relationship work is not just the flow of experience and expertise, but an underlying trust, according to Upbin.

“The trust is a very important thing,” he said. “I say that word a lot when people ask me what’s special about the EDS relationship. We’ve been able to reach a level of trust that is just superb. We have a very big document that they spent a year analyzing and putting together — and we put that signed document on a shelf a year and a half ago and haven’t looked at it since.”